On August 16, 2022, President Biden signed the Inflation Reduction Act into law. The Inflation Reduction Act is designed to raise revenue by enacting changes to the tax law to pay for various programs including health care and climate change related items. These programs and the corresponding tax reform are much smaller than proposals that had been previously suggested by the Biden Administration and Congress.
The main tax related changes that were implemented as part of the Inflation Reduction Act include:
- A 15 percent minimum tax on corporations with profits over USD1 billion for tax years beginning in 2023;
- A new 1 percent excise tax on corporations when the corporation repurchases stock from its shareholders for tax years beginning in 2023; and
- USD80 Billion in funding for the Internal Revenue Service over the next ten years for increased tax enforcement and compliance.
What’s important to note is what is not contained in this Inflation Reduction Act. Prior iterations of tax reform discussed both by the Biden Administration and Congress included items such as (i) increased capital gains and ordinary income tax rates, (ii) taxing unrealized capital gains, (iii) additional tax surcharges for high net worth and high earning individuals, (iv) decreasing the estate, gift and generation skipping transfer tax exemptions, (v) increasing the state and local tax deduction (vi) raising the corporate income tax rate for all corporations, and (vii) closing the carried interest loophole by taxing carried interests at ordinary income tax rates rather than capital gains rates. None of these items is included in the Inflation Reduction Act.
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